There is a new word for the hot hedge fund trade of 2016

It's a little different than standard M&A arbitrage, which
requires traders to make bets on whether already-announced deals
will be completed.

Bumpatrage, in short, is where investors move into a stock
and threaten to scupper a deal unless the bidder "bumps"
their price up a bit.

A report from
FTI Consulting and Activist Insight said that shareholder
activism is shifting, and that some portfolio managers could
increasingly use their sizeable pocketbooks to bully buyers into
better bids.

The report stated that 80% of participants in the survey, which
took in the views of 24 activists,
said that merger activism would increase in the coming
year.

The report said:

Merger activism and operational activism are expected to be the
predominant campaigns over the next twelve months and activists
are almost universally finding it easier to reach settlements
with management teams...

...Activism aimed at either increasing consideration in an
announced merger (“bumpatrage”) or attempting to stop an
announced merger are widely perceived to be the type most likely
to increase. Nearly 80% of investors surveyed think merger
activism will rise in the coming year.

One recent example of bumpatrage was Carl Icahn's push in 2013
for a higher price on the take-private of Dell by Michael
Dell. Dell and his private equity backers ended up
pushing the price up from $13.65 to $13.88.

The FTI Consulting report also suggested that the activist funds
surveyed believed that there was limited future
opportunities for activism at mega-cap companies. A majority
of respondents said they believe future opportunities would come
from small cap and mid cap companies.

Respondents
to a recent study are looking for more opportunities in small-cap
activism.FTI
Consulting